Sandy’s aftermath will distort the data

Commentary: Washington must gauge numbers carefully

PORT WASHINGTON, N.Y. (MarketWatch) — For the next few months, it will be hard to tell whether the economy is going up, down or sideways.

As everyone knows by now, Hurricane Sandy was a monster storm which wreaked havoc on the East Coast of the United States. It has been estimated to have caused at least $50 billion in damage across 15 states.

Sandy destroyed thousands of homes and motor vehicles as well as their contents. Needless to say, the infrastructure was severely damaged as well. Combined, this will require cleanup and rebuilding on a scale that will rival the after-effects of Hurricane Katrina, back in 2005.

Although the damage was confined to the East Coast, it was so extensive that it will affect the national statistics. Some numbers will be depressed, while others will shoot up.

The trick for policy makers is to try to figure out what’s going on beneath the surface. This way they will know if the fledgling recovery needs more stimulus or if it finally has traction and is growing at a rate more akin to a normal upswing.

For example, among the numbers likely to be depressed are employment, incomes, retail sales, consumer sentiment and industrial production.

The number of weekly claims for jobless benefits shows how severe the effects on employment were. In the last two weeks, an average of 430,000 claims was filed. Before Sandy struck, these applications averaged around 375,000. This suggests that payroll employment probably fell in November while the unemployment rate rose.

Brace yourself, also, for a decline in personal incomes in November, and the same for industrial production, which suffered a one-two punch from factories closing, as well as a decline in power produced by Northeast electric utilities.

Election encourages investors in health-care funds

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Health-care reform is expected to buoy some sectors, including pharmaceuticals.

When it comes to retail sales, it will be harder to discern the underlying trend.

On the one hand you have the obvious negative effects of Sandy: Buying power was hurt, while many stores could not open. On the other hand, you have Black Friday and the start of the holiday shopping season, which looked good, according to early reports. We will need some time to figure out this one.

That said, there are other gauges of economic activity that will unambiguously point to a positive picture. The first one that comes to mind is construction. As money becomes available from insurance companies, FEMA and other government entities, construction will boom.

The same can be said for the home-repair and remodeling business — especially those outlets that sell and install generators. Local contractors, tree trimmers and landscapers are also in demand.

For those dealers whose inventories were not damaged by the storm, the new-car business is going great guns. According to the National Association of Automobile Dealers, as many as 250,000 cars were damaged by the storm, leaving people with the need to replace them as quickly as possible.

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